lOMoARcPSD|9488965
TAX II NOTES
INTRO
SA tax legislation:
• Income Tax Act 58 of 1962
• VAT Act 98 of 1991
• Customs Act 91 of 1964
Reasons for Tax be levied:
• Collected to fund expenditure
o Administration and benefits offered to citizens and residents
Tax avoidance vs. Tax evasion:
• Avoidance: minimisation of the tax liability through legal means
• Evasion: illegal act (ex: the non-disclosure of income in an attempt to fraudulently
reduce tax liability
Four Maxims of a good tax system:
1. Equity
2. Certain
3. Convenience
4. Economical
Types of tax:
• Direct: Person
• Indirect: Transaction
Indirect Tax:
• VAT: VAT Fraction 14/114 (What you want / What you have) [14%]
• Transfer Duty: On the purchaser of fixed property [0% – 8%]
• Securities Transfer Tax: Shares (Payable on transfer) [0.25%]
Direct Tax:
• Estate Duty: Transfer of wealth [20%]
• Dividends Tax: Withheld by companies [15%]
• Donations Tax: in effect a transfer of wealth [20%]
• Turnover Tax: simpler for micro business – replaces other taxes (normal tax…)
• Withholdings Tax: tax withheld by resident on payment to non-resident
• Normal Tax: determined by taxable income of persons
1
, lOMoARcPSD|9488965
Taxable Income:
• Year of assessment:
o Individuals: 01/03 – 29/02
o Juristic Persons: Their financial year
• Gross Income: “Total amount, in cash or otherwise, received or accrued to or in
favour of a person, during a year of assessment, excluding receipts and accruals of
a capital nature”
• Exempt income:
o Included in Gross Income, but exempt under S10 of the Income Tax Act
o Cannot exempt an amount greater than the amount included in gross
income
• Deductions: Expenditures or losses granted as deductions under the Income Tax Act
• Taxable Capital Gains: Income Tax act requires disposals of assets to include taxable
capital gains on that disposal
• Normal Tax:
o Rates: Natural persons [18%-41%], Trusts [40%], Companies [28%]
o Rebates: subtracted from normal tax and not from taxable income
▪ Primary [13 500] (all)
▪ Secondary [7 407] (>65)
▪ Tertiary [2 466](>75)
▪ Age at end of year of assessment
▪ Cannot be more than normal tax
o Medical Scheme Fees Credit
▪ <65 receive tax credit for monthly medical contributions
▪ Credit for member and dependants
• Methods for collecting normal tax
o Employees Tax (PAYE)
o Provisional Tax
EXTRA:
• If a person receives money back from SARS it is not due to the rebates but rather
because the person may have paid too much provisional tax/employee tax
• 3 main source of Tax:
o Personal Income Tax
o Company Tax
o VAT
• Registering a company to avoid tax liability is not very helpful as the company is
subject to 28% tax and any amount paid out to the individual will be taxed by 15%
(dividends tax) – this gives an effective tax rate of 38.8%.
TIPS:
• There are no marks allocated to the calculation of the “taxable income” number
itself – if you are under time pressure, simply guestimate a number and calculate
the “tax per tables”
• Write each amount included in gross income as a separate line item
• Separate, foreign and local, dividends and interest
2
, lOMoARcPSD|9488965
GROSS INCOME (27)
1. Total Amount (2)
• Lategan “all form of property” “money Value”
• Butcher Bros “expressible amount”
2. In Cash or Otherwise (3)
• Brummeria “ascertainable monetary value” (Quid Pro Quo i.e. interest free
loan in exchange for no rental)
• Delfos “convertible into money”
• Lace Proprietary Mines “intention needs to be known”
3. Received by (4)
• Geldenhuys “own behalf & benefit”
• Genn “amounts borrowed”
• MP Finance Group “intended to receive for own benefit”
• Pyott “deposits for own benefit – included” “amounts refundable”
4. Accrued to (3)
• WITS “legal obligation for amounts received for another”
• People’s Stores “accrued = entitled to payment”
• Mooi “accrued = unconditionally entitled”
5. Capital Nature (15)
• Defining Characteristics (3)
- Visser “tree vs. fruit”
- George Forest Timber “floating vs. fixed capital”
- WJ Fourie Beleggings “Income earning structure”
- Burmah Steamship “amount to compensate loss of profit = revenue
in nature”
• Intention (4)
- Pick n’ Pay “profit making scheme”
- Richmond Estates “nature = intention on disposal”
- Stott “Intention on acquisition”
- Levy “dominant intention must be determined”
• Intention Change (6)
- Stott “realising at best advantage – not necessarily revenue”
- John Bell “more than a mere decision to sell to render revenue”
- Natal Estates “crossing the Rubicon” (Has infrastructure been
implemented? In business-like manner?)
- Berea West Estates “realization companies”
- Founders Hill
- Nussbaum “secondary purpose can be taxed”
• Damages & Compensation (1)
- WJ Fouries Beleggings “crippling cancelled contracts”
- Burmah Steamship “amount that fill holes in profit vs. pockets”
- Stellenbosch Farmers’ “significant contract is part of Cap. Structure”
• Illegal Business (1)
- MP Finance Group “illegal contract”
• Fortuitous Gains
- Gains that were not expected (gifts, inheritance, prizes)
• Gambling
- Sporadic successes are capital nature
- Not if professional gambler (revenue in nature)
3
, lOMoARcPSD|9488965
“Total amount, in cash or otherwise, received or accrued to or in favour of a (1) resident
from anywhere (2) non-resident from a source within SA, during a year of assessment,
excluding receipts and accruals of a capital nature”
Factors Determining Intention
• Ipse dixit (What he himself says) – Malan
• Actions of directors – Richmond Estates
• Length of time held
• Frequency – Stephen “a single transaction can constitute scheme of PM”
• Nature of TP’s business
• Income stream
• Reason for sale
o Nel “first time doesn’t mean it is not a profit making scheme”
o Nussbaum
• Finance
• Nature of asset
Unquantified amounts – s24M
• If disposal or receipt of an asset consists of an unquantifiable amount the
unquantifiable portion will be deemed not to have accrued to that person in that
year and is deemed to be accrued in the year that the amount becomes
quantifiable.
EXTRA:
• Silverglen Investments “Gross Income is included once at earlier of receipt or accrual”
• Bare dominion: actual legal ownership
• Notional interest: interest you could have earned
• Notional income: Income forgone for money you could have received – cannot be
taxed
• CGT only applies if Capital from 2001
• When answering questions in general remember this process:
Section; Introduction; Onus; Principle; Application; Conclusion (SIOPAC)
• Structure when answering a Gross Income question:
“Gross income is defined as:
o An amount:
State the principles, facts, and case law
o In Cash or otherwise
State the principles, facts, and case law
o And so on, whilst breaking up each part of the definition”
o If a item ends up being capital in nature, include in your answer that it will be
subject to capital gains tax
• Income earning structure = capital in nature
• Inheritance is capital in nature – do not include in Gross Income
• Onus of proving “capital in nature” rests on the taxpayer in terms of s102 of the Tax
Act
4
TAX II NOTES
INTRO
SA tax legislation:
• Income Tax Act 58 of 1962
• VAT Act 98 of 1991
• Customs Act 91 of 1964
Reasons for Tax be levied:
• Collected to fund expenditure
o Administration and benefits offered to citizens and residents
Tax avoidance vs. Tax evasion:
• Avoidance: minimisation of the tax liability through legal means
• Evasion: illegal act (ex: the non-disclosure of income in an attempt to fraudulently
reduce tax liability
Four Maxims of a good tax system:
1. Equity
2. Certain
3. Convenience
4. Economical
Types of tax:
• Direct: Person
• Indirect: Transaction
Indirect Tax:
• VAT: VAT Fraction 14/114 (What you want / What you have) [14%]
• Transfer Duty: On the purchaser of fixed property [0% – 8%]
• Securities Transfer Tax: Shares (Payable on transfer) [0.25%]
Direct Tax:
• Estate Duty: Transfer of wealth [20%]
• Dividends Tax: Withheld by companies [15%]
• Donations Tax: in effect a transfer of wealth [20%]
• Turnover Tax: simpler for micro business – replaces other taxes (normal tax…)
• Withholdings Tax: tax withheld by resident on payment to non-resident
• Normal Tax: determined by taxable income of persons
1
, lOMoARcPSD|9488965
Taxable Income:
• Year of assessment:
o Individuals: 01/03 – 29/02
o Juristic Persons: Their financial year
• Gross Income: “Total amount, in cash or otherwise, received or accrued to or in
favour of a person, during a year of assessment, excluding receipts and accruals of
a capital nature”
• Exempt income:
o Included in Gross Income, but exempt under S10 of the Income Tax Act
o Cannot exempt an amount greater than the amount included in gross
income
• Deductions: Expenditures or losses granted as deductions under the Income Tax Act
• Taxable Capital Gains: Income Tax act requires disposals of assets to include taxable
capital gains on that disposal
• Normal Tax:
o Rates: Natural persons [18%-41%], Trusts [40%], Companies [28%]
o Rebates: subtracted from normal tax and not from taxable income
▪ Primary [13 500] (all)
▪ Secondary [7 407] (>65)
▪ Tertiary [2 466](>75)
▪ Age at end of year of assessment
▪ Cannot be more than normal tax
o Medical Scheme Fees Credit
▪ <65 receive tax credit for monthly medical contributions
▪ Credit for member and dependants
• Methods for collecting normal tax
o Employees Tax (PAYE)
o Provisional Tax
EXTRA:
• If a person receives money back from SARS it is not due to the rebates but rather
because the person may have paid too much provisional tax/employee tax
• 3 main source of Tax:
o Personal Income Tax
o Company Tax
o VAT
• Registering a company to avoid tax liability is not very helpful as the company is
subject to 28% tax and any amount paid out to the individual will be taxed by 15%
(dividends tax) – this gives an effective tax rate of 38.8%.
TIPS:
• There are no marks allocated to the calculation of the “taxable income” number
itself – if you are under time pressure, simply guestimate a number and calculate
the “tax per tables”
• Write each amount included in gross income as a separate line item
• Separate, foreign and local, dividends and interest
2
, lOMoARcPSD|9488965
GROSS INCOME (27)
1. Total Amount (2)
• Lategan “all form of property” “money Value”
• Butcher Bros “expressible amount”
2. In Cash or Otherwise (3)
• Brummeria “ascertainable monetary value” (Quid Pro Quo i.e. interest free
loan in exchange for no rental)
• Delfos “convertible into money”
• Lace Proprietary Mines “intention needs to be known”
3. Received by (4)
• Geldenhuys “own behalf & benefit”
• Genn “amounts borrowed”
• MP Finance Group “intended to receive for own benefit”
• Pyott “deposits for own benefit – included” “amounts refundable”
4. Accrued to (3)
• WITS “legal obligation for amounts received for another”
• People’s Stores “accrued = entitled to payment”
• Mooi “accrued = unconditionally entitled”
5. Capital Nature (15)
• Defining Characteristics (3)
- Visser “tree vs. fruit”
- George Forest Timber “floating vs. fixed capital”
- WJ Fourie Beleggings “Income earning structure”
- Burmah Steamship “amount to compensate loss of profit = revenue
in nature”
• Intention (4)
- Pick n’ Pay “profit making scheme”
- Richmond Estates “nature = intention on disposal”
- Stott “Intention on acquisition”
- Levy “dominant intention must be determined”
• Intention Change (6)
- Stott “realising at best advantage – not necessarily revenue”
- John Bell “more than a mere decision to sell to render revenue”
- Natal Estates “crossing the Rubicon” (Has infrastructure been
implemented? In business-like manner?)
- Berea West Estates “realization companies”
- Founders Hill
- Nussbaum “secondary purpose can be taxed”
• Damages & Compensation (1)
- WJ Fouries Beleggings “crippling cancelled contracts”
- Burmah Steamship “amount that fill holes in profit vs. pockets”
- Stellenbosch Farmers’ “significant contract is part of Cap. Structure”
• Illegal Business (1)
- MP Finance Group “illegal contract”
• Fortuitous Gains
- Gains that were not expected (gifts, inheritance, prizes)
• Gambling
- Sporadic successes are capital nature
- Not if professional gambler (revenue in nature)
3
, lOMoARcPSD|9488965
“Total amount, in cash or otherwise, received or accrued to or in favour of a (1) resident
from anywhere (2) non-resident from a source within SA, during a year of assessment,
excluding receipts and accruals of a capital nature”
Factors Determining Intention
• Ipse dixit (What he himself says) – Malan
• Actions of directors – Richmond Estates
• Length of time held
• Frequency – Stephen “a single transaction can constitute scheme of PM”
• Nature of TP’s business
• Income stream
• Reason for sale
o Nel “first time doesn’t mean it is not a profit making scheme”
o Nussbaum
• Finance
• Nature of asset
Unquantified amounts – s24M
• If disposal or receipt of an asset consists of an unquantifiable amount the
unquantifiable portion will be deemed not to have accrued to that person in that
year and is deemed to be accrued in the year that the amount becomes
quantifiable.
EXTRA:
• Silverglen Investments “Gross Income is included once at earlier of receipt or accrual”
• Bare dominion: actual legal ownership
• Notional interest: interest you could have earned
• Notional income: Income forgone for money you could have received – cannot be
taxed
• CGT only applies if Capital from 2001
• When answering questions in general remember this process:
Section; Introduction; Onus; Principle; Application; Conclusion (SIOPAC)
• Structure when answering a Gross Income question:
“Gross income is defined as:
o An amount:
State the principles, facts, and case law
o In Cash or otherwise
State the principles, facts, and case law
o And so on, whilst breaking up each part of the definition”
o If a item ends up being capital in nature, include in your answer that it will be
subject to capital gains tax
• Income earning structure = capital in nature
• Inheritance is capital in nature – do not include in Gross Income
• Onus of proving “capital in nature” rests on the taxpayer in terms of s102 of the Tax
Act
4
